Airline Stocks: 2 to Book, 2 to Bump

Some airline stocks will keep soaring, but others will run out of fuel

Book: Delta Air Lines (DAL)

It’s clear that Delta Air Lines (DAL) CEO Richard Anderson has DAL firing on all thrusters. Last month, Delta reported earnings of 65 cents per share for the quarter — more than double the 28 cents per share it reported a year earlier, on revenue of $9.08 billion. Those numbers beat the Street on the top and bottom lines.

Looking ahead to the next quarter, DAL expects to expand margins between 6-8%; the airline also expects to boost PRASM by 3-4% in the current quarter. The company’s strategy has been a productive mix of fare and ancillary fee hikes, capacity planning and unconventional approaches to reducing jet fuel costs.

The Pennsylvania oil refinery DAL purchased in 2012 finally turned a tiny profit in the third quarter of last year — the company believes that refining lower cost Bakken crude into jet fuel will help the refinery turn solidly to the black in 2014.

Delta shares have gained 117% over the past year — an amazing run, even among airline stocks — which will give new investors pause. However, DAL is still trading at less than 10x forward earnings and has a PEG ratio of 0.8, indicating it could be slightly undervalued.